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In a roundtable, executives say they are driving “front end” involvement, orienting around customer needs and exploring AI in more depth.
In brief
- These leaders are pushing back on C-suite perceptions the supply chain is primarily a cost center by showing how it fulfills customer experiences.
- More than half of attendees said they were piloting AI initiatives, with particular interest in financial planning and analysis.
Amid a seemingly unending series of overlapping disruptions, chief operating officers (COOs) and similar leaders have been tasked with evolving supply chains to meet the demands of today and tomorrow: from linear, cost-optimized models to those that are more flexible yet resilient. Now, as the pandemic and its fallout fade from memory, supply chain leadership must seize the opportunity to deliver value, not just trim costs and ensure supply chain resiliency — and retain their “strategic” seat at the decision-making table.
The good news is that COOs from across industries, gathered as part of a virtual EY Center for Executive Leadership roundtable, unanimously predicted steady top-line growth for their organizations over the next one to two years. And they had zeroed in on digital and artificial intelligence (AI) as key enablers for building the supply chain to sustain those ambitions.
The roundtable was hosted by Sumit Dutta, Ernst & Young LLP principal and EY COO Program Leader.
Here is how COOs are navigating challenges inside their organizations and from the broader world to accelerate digitally enabled supply chains oriented around delivering value.
Assessing the economic outlook for 2025
Today, COOs are seeing an economy on a steady growth plan, said Lydia Boussour, EY-Parthenon Senior Economist, with increasing polarization reflected in consumer spending levels: higher-income households are driving growth, including the remarkable resilience in the US. While she expects 2025 to be similarly modest, those growth drivers will shift as mature markets gradually cool and those that have underperformed start to pick up again. Amid disinflation, central banks should continue gradually easing interest rates, she said.
That is creating pent-up demand for transactions, said Kristin Valente, EY Americas Chief Client Officer, although some leaders are pushing forward regardless to capture first-mover advantages. The CEO Confidence Index reveals that the most confident CEOs are proactively pursuing growth through transactions: 59% plan to make an acquisition over the next 12 months, compared to 16% of the least confident. “They’re more willing to embrace transformation and have stronger processes to manage portfolios and strategic investments,” Valente said.
Although executives believed growth would be steady, the world keeps delivering shocks to be reckoned with, including the conflicts in the Middle East and Ukraine. “We’re looking at three scenarios: contained, escalated and regional war,” Valente said. “The latter two have significant impacts on the economy, particularly in how it would drive up oil prices and impact trade routes, and the added time and pressure on supply chains. That puts into play the likelihood of a recession.”
One leader of a chemical company noted how regulation could have global implications on supply chains. “Some of our producers are struggling because of the heavy burden of regulation in Europe, which will take capacity out of the market,” this leader said. Others cited geopolitical factors such as labor strikes on the East Coast, a drought in the Panama Canal and other disruptions to the Suez Canal. These challenges highlight the persistent need for resilient supply chains — but the hurdles are not purely within the external environment.
Driving connectivity across functions and to consumer experiences
The EY 2024 Supply Chain Survey highlighted those hurdles: 88% of supply chain leaders report that their C-suite considers the supply chain a cost center, while just 45% believe supply chain contributes to revenue generation. Meanwhile, of the approximately 30,000 new products introduced each year, a staggering 95% fail because of a lack of collaboration between supply chain, commercial and finance, according to one study.1
To deliver on growth, some attendees of the virtual roundtable discussed a mindset in which launching an entirely new product or marketing program was the priority, then shifting to optimizing the supply chain afterward — especially in an environment where the traditional mindset of design, build and deploy over 12 to 18 months is increasingly outmoded.
One COO said his organization relied on an agile operating model, with smaller and empowered teams that are cross-functional and can deliver more quickly — to learn and then adapt. Another agreed, adding: “The new normal is to deploy rapidly, learn, then adjust as you go. Functions need a new mindset to achieve progress over perfection.”
By contrast, one COO in a large multinational founded over 100 years ago lamented how his organization “tried to tune things to the last degree.” He said: “There’s a certain type of person you need in the middle so you’re not squashed by conservatism. Adventurism goes with growth and new product introductions.”
Others spoke about building a “front end” to their supply chain organization — a commercialization function that acted as a one-stop shop for more proactive enablement, with supply chain merging into marketing and category and product development. This business supply chain team acted as the direct interface with the business units, one participant said. “We could take product plans and promotion plans and then create supply chain capabilities to service those plans, as long as we translated into each other’s language,” he said.
More broadly, leaders must convey to the C-suite how supply chain enables customer journeys and experiences — across prepurchase, purchase and post-purchase — that build satisfaction and deliver upon the organization’s mission. For one COO, that meant reimagining the supply chain in terms of how customer satisfaction was enabled, not just how functions worked in silos to hit their own targets. He brought stores, inventory management, supply chain and customer care together to hash out metrics that would reflect success or failure at every leg of the customer journey. “Baselining core metrics and KPIs in the customer experience should be translated back into what it means for each function,” he said.
This exercise hits on a perennial pain point for many companies: a lack of understanding and visibility into how supply chains are performing. In fact, in the EY survey, 97% of organizations said they were facing challenges relating to supply chain metrics. “Baselining shows you where to focus your time, resources and energy,” this COO said, admitting that it was a manual and time-intensive undertaking at first. “It was compelling because the organization didn’t have a full appreciation of our starting point.”
Naturally, the conversation began to gravitate toward arguably the biggest potential sources of transformative value in supply chains: AI and generative AI (GenAI).
How would you describe your organization's current readiness for AI/AI adoption?
Making the digital leap to AI
Among executives in the roundtable, most (57%) were in the piloting phase for their AI and GenAI initiatives, while 29% were in the early planning stages and 14% were reassessing capabilities. (None had yet implemented AI at scale.) Some general dissatisfaction with prior digital initiatives hanged over this conversation: when asked about ROI from the past year from these efforts, 57% said that it had fell short of goals, while 29% said it met targets and 14% cited significantly exceeded expectations.
How would you rate the success of your organization in delivering ROI from digital initiatives in the past year?
This tracks with EY research from June 2024, which shows that most supply chain and operations executives (73%) are planning to deploy GenAI, yet 62% have reassessed projects, and only 7% have completed implementation. COOs who were early in their journeys were eager to make the leapfrog from “crawl” to “run” in their capabilities. “AI tools are working, but they’re a third of the solution,” one leader assessed. “If you don’t have good data, or if you experience some shock to the system like a quality issue or a supplier dropping out, then you’re back to square one on forecasting and tying off with financial planning and analysis.”
Boussour noted that it takes time for such a disruptive technology to turn into productivity gains, but those improvements will eventually arrive in a big way, potentially adding 3.5% to 7% to US GDP over the next decade, according to EY research. “We need to build the foundation in terms of capital investment — the infrastructure and training — to enable the technologies and reap the benefits,” she said. With talk of digital initiatives such as GenAI not meeting return on investment yet, one supply chain leader noted that objectives are not well-defined up front or don’t fully capture the value of the transformation (for instance, of building out data infrastructure).
In the words of one participating executive in private equity, “The hype on GenAI is true.” Today, his organization is using GenAI in computer code, which has been rolled out to dozens of portfolio companies, with 15% to 20% improvement in developer productivity. For whatever function is involved, including supply chain, he believes the difference hinges on change management topics like employee training. Then that productivity gain must be reflected in budgets, with the expectation that workers must achieve more with the same staff or do the same amount of work with less. “These are all academic exercises unless you drag it into the bottom line,” he said.
Specifically, within supply chain, several participants said that on AI, they were exploring the paradigm of build, buy or partner. One retail COO said his organization has such large gaps in capabilities that it would not be effective to build except perhaps on differentiating capabilities unique to their value proposition. “But supply chain isn’t as differentiating,” he noted. Another leader in the hospitality industry added that tailored AI solutions are most suited for consumer goods and need to be customized for his industry.
Naturally, data was a persistent concern, both how to cleanse it and how to easily store and access it for use with AI and analytics. “If you’re not set up to integrate acquisitions into a common data backbone to use enterprise-wide systems quickly, you end up with a number of systems,” a COO said. “We might do six or seven M&A deals, and some are too small and some take time. We’re two to three years away from that common data.”
AI can have a role in the cleansing process up front, and data platforms offer an easy way to house and interact with that data, without an entire organization being on the same enterprise resource planning software, for example. “Now we have a chat interface, where we can ask questions like ‘What is the annual recurring revenue of our portfolio companies ranked?’” the private equity leader said. “Even if you actively drive AI two years from now, get data in one place and start playing.”
Overall, EY leaders highlighted three areas of reassessment to maximize impact from AI:
- Ensure data readiness, especially for use cases prioritized for a quick ROI.
- Address issues with cybersecurity and integrate into existing IT infrastructure (leveraging cloud).
- Align people and investments to strategic vision.
Summary
To pivot their supply chains around delivering value, not just lower costs and improve supply chain resiliency, COOs are bringing a lot more focus on front-end collaboration and designing for the customer experience. Naturally, they’re also looking intently at AI and piloting projects while assessing the strengths and weaknesses of the technology — as well as their own organization’s capabilities from a build, buy or partner perspective.